5 tips on how to increase borrowing capacity

Information in this article is general in nature and does not constitute financial or credit advice. Always seek guidance from a licensed mortgage broker or financial adviser before making decisions about your home loan.

5 Tips on How to Increase Borrowing Capacity

Getting into your first home is one of the most rewarding milestones in life, but before you can choose your community, your block, and your floor plan, there’s an important number to get right: your borrowing capacity.

Your borrowing capacity (also called borrowing power) is the amount a lender is willing to loan you. It’s shaped by your income, your expenses, your debts, and your credit history, and it has a direct bearing on how much home you can afford and which communities are within reach.

The good news is that borrowing capacity isn’t fixed. With some focused effort over as little as six months, you can make a real difference to the amount a bank or licensed lender will offer you. Here are five practical ways to strengthen your financial position and take a confident step toward your new home.

1. Budget — Properly, This Time

You’ve probably written a budget before. But have you stuck to it? Has it kept pace with changes in your income, rent, or lifestyle?

A detailed, honest budget is the single most powerful tool for improving your financial position. It reveals exactly where your money is going — and where you can redirect it toward your deposit and loan serviceability.

Make your budget as comprehensive as possible. Include:

• Weekly costs: groceries, fuel, transport
• Fortnightly costs: rent, insurance premiums
• Monthly costs: utilities (electricity, gas, water), phone and internet, subscriptions, medication
• Annual costs: car registration, rates, essential travel
• Irregular costs: car repairs, medical expenses, replacing appliances

To help you build a simple, realistic home-buying budget, see our home buying and borrowing guide.

2. Understand How Lenders Assess Your Application

Knowing what lenders look at gives you a real advantage when it comes to preparing your finances. When you apply for a home loan, your lender will assess:

• Your income: including salary, rental income, and any other regular earnings
• Your existing debts and liabilities: credit cards (including limits, not just balances), personal loans, car loans, and now Buy Now Pay Later accounts
• Your credit history: a record of how reliably you’ve met financial obligations
• Your expenses: using declared living expenses and bank transaction data

One important concept to understand is the serviceability buffer. APRA (the Australian Prudential Regulation Authority) requires lenders to assess whether you could still afford repayments if interest rates were 3% higher than the current rate. This buffer protects you from financial stress if rates rise, but it also means lenders need to be confident your finances can carry the extra load. Reducing debt and unnecessary expenses directly improves how you perform against this test.

You’re also entitled to check your own credit report for free through verified credit reporting bodies such as Equifax, Experian, or illion. If there are any errors or issues on your report, addressing them before you apply for a loan can make a meaningful difference.

3. Tackle Your Existing Debts

Reducing debt is one of the fastest ways to improve your borrowing capacity. Every dollar you owe reduces the amount a lender is willing to lend you, because it reduces what’s left over each month to service a home loan.

Start by listing all your debts: credit cards, personal loans, car loans, and any Buy Now Pay Later balances. Then:

• Prioritise the highest-interest debt first. Check your statement or contact your lender to confirm the rate. Paying this down as quickly as possible saves you the most in interest charges.
• Pay more than the minimum. Interest accrues daily on most debts, so any extra repayment, even small, reduces what you owe faster.
• Consider your credit card limits. Lenders assess your credit card limit, not just your current balance. If you have a card with a $10,000 limit that you rarely use, reducing that limit can directly improve your borrowing capacity.
• Keep a buffer. Leave enough financial headroom each month for unexpected costs, car repairs, medical bills, so a single setback doesn’t derail your plan.

A mortgage broker can help you model exactly how paying down specific debts would affect your borrowing capacity, which can make prioritisation much clearer.

4. Cut Back on Buy Now Pay Later — More Than Ever

Buy Now Pay Later (BNPL) services like Afterpay, Zip, and Klarna are incredibly convenient, but they carry real consequences for your home loan application.

From 10 June 2025, BNPL products in Australia are now regulated as consumer credit under the National Consumer Credit Protection Act. This means BNPL providers must conduct proper affordability checks, and BNPL debts are increasingly reported to credit bureaus and formally factored into lender serviceability assessments, much like a credit card or personal loan.

Put simply: if you’re carrying BNPL balances, lenders can and will count them against you when calculating how much you can borrow.

Beyond the regulatory changes, BNPL use can affect your profile in subtler ways too. A pattern of frequent, small BNPL transactions can signal financial stress to a lender, even when each individual purchase seems harmless.

Our recommendation: While you’re in savings mode and preparing your home loan application, close BNPL accounts and pay off any outstanding balances. Avoid the temptation of “interest-free” offers; the cost to your borrowing capacity is rarely worth it.

If you currently use BNPL services, check for accounts with these providers and work to close them:

• Afterpay
• Zip
• Klarna
• Humm

Also be mindful of offers framed as “12 / 24 / 36 months interest free” — these are credit facilities and are assessed as such by lenders.

5. Trim Your Expenses and Use Smart Savings Tools

Once you’ve mapped your budget and tackled your debts, the next step is finding ongoing ways to reduce your outgoings. Many of these changes only need to be temporary – short-term discipline for a long-term reward.

Some practical ways to cut costs:

• Use public transport where possible: Petrol, parking, maintenance, and insurance add up quickly.
• Pause your gym membership: Many Satterley communities are designed with parks, walking trails, and outdoor fitness areas built in. Staying active doesn’t have to cost a thing.
• Audit your subscriptions: Streaming services, meal kits, apps, and online memberships. Cancel anything you’re not actively using.
• Shop around on energy: Use the Australian Government’s Energy Made Easy website to compare electricity and gas plans and find a better deal.
• Consider your living situation: Moving back in with family temporarily, or sharing a property with others, can free up significant savings. It’s not for everyone, but if it’s an option, it’s worth considering.

Digital tools to help you stay on track:

• MoneySmart ASIC’s independent financial literacy website. Their Budget Planner and Savings Goals Calculator are excellent free resources.
• Frollo: An Australian-made money management app powered by Open Banking (CDR), which connects securely to your bank accounts and gives you a real-time view of your spending and financial health.
• WeMoney: Another popular Australian app using Open Banking to track spending, monitor your credit score, and set savings goals.
• Spendee: A user-friendly expense tracker with shared wallet features, useful for couples or housemates managing combined expenses.
• PocketSmith: A powerful budgeting and forecasting tool that can project your financial position months ahead, helping you plan toward your deposit target with confidence.

For further reading and listening:

• The Barefoot Investor by Scott Pape: Australia’s most widely read personal finance guide, updated in 2022 and available in most public libraries.
• Mr Money Moustache (mrmoneymustache.com): A practical, no-nonsense blog on financial independence and smart spending habits.
• The Pineapple Project: An accessible podcast on personal finance and life’s bigger challenges. Available on Spotify and Apple Podcasts.

Ready to Take the Next Step?

Building your borrowing capacity takes focus and consistency, but it’s absolutely achievable. With a clear budget, reduced debts, and the right tools, you could be in a meaningfully stronger financial position within six months.

At Satterley, we’ve helped more than 315,000 Australians find their place in a community they love, and we know that every great home starts with a plan. Whether you’re just beginning to save or are ready to explore your options, our team is here to help guide you through the journey.

Explore our communities across Western Australia, Victoria, and Queensland, or get in touch with our team to start the conversation.